The term “business travel expenses” is a broad catch-all for all money spent while traveling for work. The process around business travel expenses is an integral part of any business trip and can be a smooth touchpoint that empowers business travelers to feel confident spending company money while offering traveler managers spend visibility and control. Or it can become a challenge, or even a recurring problem, if handled with outdated technology and obtuse travel policies.
Business travel expenses do not usually include every transaction and all actual expenses that happen when a credit card is swiped while on the road. Rather, it applies to all money spent on business purposes. The definition of permissible travel expenses, of course, varies in each company. Travel expenses usually include all money spent when an employee leaves the general area of their regular place of business in order to meet coworkers, clients, or partners.
For example, an employee who lives in New York could expense transportation costs to a business meal they are hosting, or if they need a taxi to transport business-related display materials to a different work location. An employee who lives in New York could also expense travel costs if they had to fly to visit a client in a different city in the United States. Commuting is also often considered a business expense. What would not be considered part of the actual cost or cost of travel is money spent on personal expenses while en route to the meeting. Responsible travelers must deduct these expenses from the total spent to report on actual expenses for business use.
Business travel expenses usually include all meals spent to attend a business meeting, host business meals, or engage in business activities. Most companies consider transportation expenses, including car rentals, airfare, trains, and taxis, as permissible travel expenses.
Accommodations are also a common travel expense, including hotels and short-term house rentals, depending on the organization’s policy. Most companies also consider the cost of meals and entertainment expenses when spent with colleagues or clients, as well as all modes of transportation, accommodations, and meals.
There are also smaller travel expenses that employees might face during business travel: Parking fees, rental fees, meal expenses spent during transportation, personal activities, gratuities, car expenses, and even commuter costs in a business destination. These often fall under standard per diem rates that companies issue in order to empower employees to spend on business expenses within a set budget however they see fit. Typically, expenses for dry cleaning are not included unless the trip lasts for an extended duration of time.
Whether these related expenses are reimbursed tends to vary by individual company policy. Similarly, incidental expenses like Wi-Fi are not typically included in per diems, as they can vary from place to place as to whether there is a charge or available to travelers at no cost.
Ask any entrepreneur, small business owner, or self-employed person, and they'll tell you that deductible travel expenses and travel deductions are important to track for tax purposes. If you then take that and apply it to a company with hundreds or thousands of employees submitting, you can start to get an idea of how important accurately tracking necessary expenses are for tax returns, income tax, and tax law in every single tax year.
All businesses—from a company of one to a multinational enterprise—should have a tax professional on their team to help them make sure that all travel expense deductions are accounted for in the tax year.
Per diem rates refer to the amount of money a company designates for business travelers to cover their necessary daily expenses, including transportation, hotel, meals, and personal expenses.
Depending on the employer, the per diem is broken down in a couple different ways. Some business travelers might have price limits on travel costs and providers they select. They also might have parameters on how much they can spend on additional necessary expenses such as business meals and location transportation. While flights and hotels are often paid directly by the employer, business travelers often have to pay for and then expense the other day-to-day costs.
Special rules can sometimes apply depending on the purpose of the trip.
Other employers go with fixed per diem rates, or a set daily allowance that employers provide business travelers for all necessary expenses and personal expenses. The per diem rates vary by destination city as the costs for approved expenses often vary from city to city.
Per diems are set because designated travel expenses become tax-deductible business expenses. Typical tax-deductible business travel expenses include all transportation including planes, trains, buses, and rental cars, as well as short-term trips with taxis or ride-share apps. It also includes luggage costs, meals, lodging, and incidentals. Per diems also provide a guide to employees on their company’s acceptable amount of expenses per day while traveling for work.
Keeping track of travel expenses and proactively reducing them is tough work. Taking steps like moving your travel program from unmanaged to managed, centralizing a platform where travelers can book and manage their travel, and providing visibility for travel managers are all good places to start. But there may be more opportunities to curb or predict spend.
That’s where business mileage reimbursement policies come into play, for example. Mileage reimbursement is the concept of paying back business travelers when they pay for gas out-of-pocket using their own vehicle when they are required to leave their main place of business. Mileage reimbursement involves the Internal Revenue Service (IRS) because it does not count as employee income and therefore is not subject to tax withholding. The IRS sets standard mileage rates each year for all businesses based in and filing taxes in the U.S.
In the case of business travel done by rental car, companies typically reimburse the cost of the rental car and gas, but not mileage, as it isn’t the employee's car. Done right, mileage reimbursement increases employee satisfaction and businesses can even get tax deductions for reimbursing employees.
Calculating business travel expenses is particularly important for those considering self-employment. All travel costs can affect your tax return and tax home rate, which is why we encourage entrepreneurs to work directly with a CPA (Certified Public Accountant) so they can ensure all business travel expenses are accurately calculated and expensed for their business.
Even self-employed entrepreneurs find the benefits of using a corporate travel and expense management system to ensure that their business expenses are fast and easy so they can focus on more strategic parts of their business, like growth.
In summary, business and travel expenses are an essential part of any businesses’ operations, and having the right tools, processes, and systems can be a major aid to your organization’s success.
Find out how Navan can help your company manage its expenses in an innovative way.
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